Cipla Business Analysis

Cipla Business analysisName of the Student Roll No

Swarna Biyani 04

Sanket Desai 09

Behram Engineer 12

Rohan Jadhav 18

Rohit Jadhav 19

Namrata Kolte 25

Shama Lonare 27

Shivangi Mathur 30

Ashok Wagh 54

Business profile of Cipla

Business profile of Cipla It is a prominent Indian Pharmaceutical Company, best-known outside its

home country for manufacturing low-cost anti-AIDS drugs for HIV-positive patients in developing countries.

Founded by Khwaja Abdul Hamied as The Chemical, Industrial & Pharmaceutical Laboratories in 1935.

Apart from its core pharmaceuticals offerings, Cipla offers services like consulting, commissioning, engineering, project appraisal, quality control, know-how transfer, support, and plant supply.

Apart from its presence in the Indian market, Cipla also has an export market and regularly exports to more than 185 countries.

Business profile of Cipla Board of Directors:

Founder: Dr. K.A. Hamied (1898-1972)

Chairman & Managing Director: Dr. Y.K. Hamied

Joint Managing Director: Mr. M.K. Hamied

Whole-time Director: Mr. S. Radhakrishnan

Non-Executive Directors: Mr. V.C. Kotwal, Dr. H.R. Manchanda, Mr. M.R. Raghavan,

Mr. Ramesh Shroff, Mr. Pankaj Patel, Mr. Amar Lulla.

Business profile of Cipla

Y/E March (` cr)

3QFY2011 2QFY2011 2QFY2011 % chg qoq

3QFY2010 % chg yoy

Net sales 1,501 1580 (5.0) 1344 11.7

Other income

78 52 49.7 112 (30.2)

Gross profit 806 831 (3.1) 719 12.0

Operating profit

266 331 (19.7) 286 (6.9)

Net profit 233 263 (11.5) 289 (19.4)

Business Analysis of Cipla

Products and offerings.

The company has a wide range of products with more than 150 API and 1600 formulations.

No single product contributes to more than 2% of sales.

Some of the major Product are Vanlid 150,VC15,Enta Vir 150.

Market Share and ReachLargest Market share of 5.3% in Indian retail

Pharma sales.20 products in top 200 Pharma brands in India. Market leader in respiratory and Anti-Viral

categories.Distribution network of 42 sales depots,2300

stockist, 160000 chemists and over 4800 sales personnel.

Location of plants and FactoriesPlants all over India in locations like Himachal

Pradesh, Bangalore, Maharashtra, Goa, Madhya Pradesh.

Company plans to spend around 19Bn Rs over the next few years to modernize and build new plants

Most of the plants have UD FDA approval.The absence of plants near ports can increase the

logistical costs when it comes to exports.

Business ModelCipla has low risk Business model where it partners

with foreign pharma companies to distribute its APIs. It has partnership with companies in 170 countries and

has 7000 product registrations.Exports contribute to more than 50% of sales with

Africa contributing to 36% of exports.The RnD expense has increased steadily by 17% YoY

enabling CIPLA to gain more patents.

Strengths-Exports to over 175 countries that contribute 54% of the total turnover.-Market leader in key therapeutic areas such as respiratory care and anti-viral.-Company has an extensive distribution network. -Cipla has 18 brands that features among the top 300 brands.-Large basket of around 1500 formulations.-One of the country’s best R&D Process.

Weakness-Domestic growth was steady at 10 per cent.-Growth in formulation exports was affected due to various factors including non-availability of important raw materials, lower tender business in anti-retroviral.

Opportunities:-- 46 ANDAs pending for approval in US.- Plans of launching bio-similar, particularly relating to the oncology, anti-asthmatic and anti-arthritis categories - Around 10% contribution to the revenue from the Indore SEZ to start coming in from FY2013E.- 5–6 Inhalers products are at different stages of approvals.

Threats:-

- Some pending legal cases on account of alleged overcharging in respect of certain drugs under the Drug Price Control Order. - Sensitive to fluctuations in foreign currency exchange rates.

SWOT analysis

Consolidated Balance Sheet and its Analysis

Consolidated Balance Sheet

Balance Sheet (Consolidated)

Y/E March (Rs. Crore)

Particulars FY2007 FY2008 FY2009 FY2010

SOURCES OF FUNDS

Equity Share Capital 155 155 155 161

Reserves & Surplus 3081 3600 4192 5750

Shareholder's Funds 3236 3755 4348 5911

Total Loans 123.5 540.5 940.2 5.1

Deferred tax liabilty 112.7 149.2 164.2 179.2

Total Liability 3472 4445 5452 6095

APPILCATION OF FUNDS

Gross block 1800 2202 2693 2897

Less: Accumulated Depreciation 412 540 701 886

Net block 1388 1662 1992 2011

Capital WIP 73 233 366 684

Investments 118 93 80 246

Current Assests 2834 3745 4418 4367

Cash 131 80 53 62

Loans & Advances 696 1138 1113 1226

Others 2007 2527 3251 3079

Current Liabilties 941 1288 1405 1214

Net Working Capital 1893 2457 3013 3153

Total Assets 3472 4445 5452 6095

Interpretation In sources of funds, the equity share capital issued to public

has increased from 155 in FY2009 to 161 in FY2010.

Investments made by CIPLA in FY2009 had dipped to just 80 crores as against FY2008 which was about 93 crores. But in FY2010 the investments have again raised to astonishing 246 crore.

The current liabilities for the FY2010 have reduced by around 13% as compared to P.Y. This shows that the company has few liabilities to owe to the lenders.

The working capital has increased by about 4.6% for the year FY2010.

Vertical Revenue StatementVertical Revenue Statement

(Consolidated)


Gross Sales 3533 4101 5022 5410

Less : Excise Duty 95 91 61 52

Net Sales 3438 4010 4961 5358

Other Operating Income 125 207 276 265

Total Operating Income 3563 4217 5237 5623

Total Expenditure 2750 3384 4013 4292

Net Raw material 1726 2054 2347 2453

Other Mfg. costs 387 314 439 445

Personnel 185 214 271 319

Other 454 802 955 1075

EBITDA 688 626 948 1066

Less : Depreciation & Amortisation 103 116 152 167

EBIT 585 510 796 899


PBT 807 838 895 1325

Less: Tax 140 137 124 244

PAT 667 701 771 1081

EPS ( Rs.) 8.6 9 9.9 13.5

InterpretationNet sales increased from 3438 in FY2007 to 5358 in FY2010.

Percentage change in PAT as compared to P.Y. for FY2009 was 43.3% as compared to FY2008 which was just about 5.1%.

Decrease in PAT % in FY2010 by 1.8%.

Even though the Net Sales have increased from FY2009 to FY2010, the PAT has reduced.

Cash FlowY/E March (` cr) FY2008 FY2009 FY2010

Profit before tax 838 897 1,326

Depreciation 131 171 190

(Inc)/Dec in Working Capital (404) (711) (174)

Less: Other income

Direct taxes paid 171 165 256

Cash Flow from Operations 393 292 1086

(Inc.)/Dec.in Fixed Assets (563) (700) (526)

(Inc.)/Dec. in Investments 25 13 (166)

Other income - - -

Cash Flow contd..

Cash Flow from Investing (538) (687) (692)

Issue of Equity - - 669

Inc./(Dec.) in loans 448 395 (935)

Dividend Paid (Incl. Tax) (155) (155) (155)

Others (200) 130 36

Cash Flow from Financing 93 369 (386)

Inc./(Dec.) in Cash (52) (26) 9

Opening Cash balances 132 80 53

Closing Cash balances 80 53 62

Inference from cash flow

The cash inflow in the year 2008, 2009 was negative, while in the yr 2010, it was positive. However, the closing cash balance for all the 3yrs was positive.

The cash outflow in terms of the dividend paid was consistent for all the 3yrs.

As far as the financing activities are concerned, the cash inflow in the yr 2008, 2009 was less than the cash outflow, whereas in the yr2010 the cash inflow was more than the outflow.

If we compare the years 2008 and 2009 some of the loan was paid off in the year 2009, and additional loan was taken in the year 2010.

Inference from cash flowThere was no issue of equity shares in the year 2008 and 2009

whereas there was issue of equity shares in the year 2010.

There was more cash outflow from investing activities in all the three years. From this we can assume the purchases must have been more than the sales.

Cash flow form operating activities decreased in the year 2009 as compared to 2008 but dramatically increased in the year 2010

SOURCES AND APPLICATIONS OF FUNDS

Application & Investments

2008 2009 20100

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

fixed assets

investments

Changes in the working capital

2008 2009 20100

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

current assets

current liabilities

changes (approx)

Changes in Sources of funds

2008 2009 20100

1000

2000

3000

4000

5000

6000

7000

sources working capital changes

Ratio Analysis Ratio Analysis is the process of identifying the financial

strengths and weaknesses of the firm by logically establishing the relationship between the figures given in Profit & Loss account and Balance Sheet and interpreting the result thereof in order to derive meaningful conclusions.

Ratio Analysis of cipla Current Ratio=Current assets

Current Liabilities

Fy2008=745/1288=2.9 Fy2009=4418/1405=3.14 Fy2010=4367/1214=3.59

The ideal Current ratio is 2:1.If the current ratio is 2:1 the company’s position

is good.The current assets is more than 2:1 then its shows that the funds are unnecessarily blocked in the current assets. It affects the profitability of the organisation.

Asset Turnover Ratio= Net Sales/Net assets Fy2008=2.1 Fy2009 =2.1Fy2010 =2.0This ratio indicates whether the assets are efficiently utilized or

not. A high ratio indicates efficient utilization of assets. On the other hand a low ratio indicates inefficient utilization. An increase in the ratio indicates that there is improvement in the utilization of fixed assets.

Inventory Turnover Ratio(days)= cost of goods sold *365/Average stock

Fy2008 =91 Fy2009 =88 Fy2010 =94 This indicates how fast the inventory is moving through the

firm and generating sales.

Average Collection period= Days in a year/ Debtor turnover ratio

Fy2008=105 Fy2009=114 Fy2010 =111 The main aim of this ratio is to ascertain how much time

debtors take to make the payment to the firm. More number of days indicate delayed payments by the debtors. Over here it is found that on an average debtors take 111 day (for fy 2010) to make payment.

Average Payment Period=Days in a year/Creditors turnover ratio Fy2008=45 Fy2009=45 Fy2010=54 This ratio indicates the period which is normally taken by the

firm to make payments to the creditors. Less number of days implies that the creditors are being paid quickly thereby increasing the credit worthiness of the firm.

Working Capital Cycle(ex cash)days=

Net Sales/net working capital Fy2008= 179 Fy2009 = 186Fy2010 =196

The ratio indicates the number of days the working capital is being used.

Net Debt to equity Ratio=

Debt (Long term)/ Equity (Shareholder’s funds) Fy2008=0.1 Fy2009=0.2 Fy2010 =(0.0) This ratio judges the long term financial position and

soundness of the long term financial policies of the firm. In general lower the debt-equity ratio higher the degree of protection enjoyed by the lenders.

Changes in working capitalParticulars F.Y. 2008 F.Y. 2009 F. Y. 2010

(Rs.in crores) (Rs.in crores) (Rs.in crores)

Cash 80 53 62

Loans & advances 1,138 1,113 1,226

Other 2,527 3,251 3,079

Current Assets (A) 3,745 4,418 4,367

Less:

Current liabilities (B) 1,288 1,405 1,214

Working Capital(A-B) 2,457 3,013 3,153

Inference from changes in working capital. The cash balance of the company has reduced in the years 2009 and

2010 affecting the net working capital of the company.Though in the year 2010 the cash balance has increased to a certain extent as compared to the year 2009.

The loans and advances granted to others by the company has managed to remain more or less the same, though in the year 2010 they have marginally increased to some extent.

The current assets of the company in the year 2009 has increased considerably over its previous year mainly because of other current assets increasing manifold times. Though in the year 2010 it has dropped a bit due to a drop in the other assets.

Inference from changes in working capital.

The current liabilities like the current assets has increased in the year 2009 as compared to 2008 though not in the same proportion, hence the increase in working capital has not been affected much. But then again in the year 2010 the current liabilities has decreased marginally over the previous year.

The working capital has managed to increase steadily over the years indicating the company’s good health. This has been possible mainly due to an excess of current assets over the current liabilities in all the 3 financial years.

The overall study of the working capital depicts a pleasant picture of the company and calls for a positive response from all the existing and future investors of the company.

ConclusionSources and Application of Funds: There is substantial increase in the profits of the company as compared to

the last year i.e. 2009. It is Rs.1324.99 cr. in the year 2010 i.e. an increase of by Rs.423.68 cr. Major transactions that are affecting the profits is the revenue generated from the sale of brand and other related rights which amounts to Rs.95.00 cr. There remarkable increase working capital in the trade payables i.e. it has increased to rs.30.79 cr as compared to Rs 10.99 in the year 2009.The major sources of the company is through the issue of the QIP shares and applications of the funds are diverted towards the purchase of the fixed assets.

Revenue Statement: Net sales increased is from 3438 in FY2007 to 5358 in FY2010.which is

positive for companies point of view. There is Decrease in PAT % in FY2010 by 1.8%.Even though the Net Sales have increased from FY2009 to FY2010, the PAT has reduced means operating margin has decreased.

ConclusionBalance sheet: In sources of funds, the equity share capital issued to public has

increased. Investments made in FY2009 had dipped to just 80 crores as against FY2008, in FY2010 the investments have again raised to 246 crore. Current liabilities for the FY2010 have reduced compared to P.Y.it shows that the company has few liabilities to owe to the lenders. The working capital has increased by about 4.6% for the year FY2010.

Working Capital: There has been continuous increase in working capital. This is mainly due

to an excess of current assets over the current liabilities. This is positive sign for investors.

Thank You

Cipla Business Analysis

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